Yesterday’s market action did not give a clear cut indication of UP or DOWN over the near-to-intermediate term, but it favored the bulls by a hair.
A second Fed taper doesn’t appear to be an issue, the economic recovery is tracking positive, and international economies are stabilizing.
That leaves Q4 earnings and revisions that result for the rest of 2014, as well as the “technical” picture as swing factors for the direction of stock prices.
After a 177% bull market rise in the S&P 500 and 29% rise in 2013 alone, is this market at risk, or just pausing pursuant to another leg up ?
The risk of a Q1 correction is still there, as explained below, but the burden of proof is now on the bears.
One industry that must be watched closely is the housing industry. Housing Starts for December were reported this morning. Starts were down 9.8% vs a gain of 23.1% in November.
It was hoped that a 12% jump in the Mortgage Bankers’ Applications for the week ended Jan. 10 was a good omen, but MBA apps reported this morning for the week ended Jan. 17 dropped 4.0%. The average rate for conforming 30-year mortgages ($417,500 or less) dropped 9 basis points to 4.57% – a positive.
TODAY:
Odds favor a spike up today with Resistance starting at DJIA 16,498 (S&P 500: 1,854). Nasdaq Comp. and Russell 2000 especially upbeat.
Investor’s first read– a daily edge before the open
DJIA: 16,414
S&P 500: 1,843
Nasdaq Comp. 4,225
Russell 2000: 1,175
Wednesday, Jan. 22, 2014 9:15 a.m.
I AM REPEATING THE FOLLOWING TO MAINTAIN AN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
Best Six Months to own stocks:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
Is this going to be another “BEST six months to own stocks ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $549.07) Positive
Nice reversal Tuesday. Support now$546, resistance – $556 – $560.
Facebook (FB:$58.51) Positive
Three day correction reversed sharply Tuesday. New high $58.96 possible. Support now $57.80
IBM (IBM:$188.43) Positive
Reversal Tuesday on high volume followed disappointing earnings. Support $185.70. Resistance $190.
Pulte Homes (PHM: $19.20) Positive
Probing for support above $19.00. Resistance following stock down – now $19.50.
First Solar (FSLR:$51.81) Negative
Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. May be forming double bottom above $50. A push above $54 would improve its technical pattern.
Nike (NKE:$73.75) Negative –
Technical pattern getting uglier. Was up slightly Tuesday on a sharp increase in volume. Must hold $73.30. Resistance is $75.
Hewlett-Packard (HPQ:$29.90) Positive.
Closed near its high Tuesday, but volume was light. Support is $29.10,
resistance – $30.
Polaris Inds. (PII:$135.92) Positive/Neutral
Stock has returned to October – December support. Must find a buyer here. Resistance is formidable at $138.
Amazon (AMZN: $407.05) Positive
Finally broke out of $390 – $405 trading range to hit new high at $40.80. Support is $405.
Pandora Media (P:$35.01) Positive.
Sellers in the $36 area may cause Pandora to slip to $33.60.
TECHNICAL ANALYSIS ALERT LIST
The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.
Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop sell. NOTE: Yesterday, I have noted price levels where I thought these stocks should encounter buying (support). But the intensity of the weakness in the overall market can take them much lower. While lower prices can make a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list.
Then too, delisting can occur if a stock becomes fully priced or its technical pattern deteriorates.
Align Technologies (ALGN:$62.67) Listed here (12/23) at $57.03. Due to a one-day reversal Tuesday with resistance now at $64, ALGN is no longer technically attractive.
Gentex (GNTX: $33.87) Listed here (12/23) at $32.64. Support: $33.60
Netease (NTES: $80.73) Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35. Support: $80
Spirit Airlines (SAVE: $49.99) Listed here (12/23) at $46.06. Support: $48.40
Valeant Pharm. (VRX: $136.88)Listed here (12/23) at $112. No longer technically attractive after a big run up.
Dycom (DY:$29.24) Listed here (12/23) at $28.05. Support: $28.80
Cognex (CGNX: $38.14)Listed here (12/23) at $36.09. Support $37.80
Salex Pharm. (SLXP: $100.05) Listed here (12/23) at $87.61. Odds are it can run further, but unattractive due to big run up.
Natus Medical (BABY:$25.70) Listed here (12/24) at $22.80. Support: $25.70
Sierra Wireless (SWIR:$22.18) Listed (12/24) at $22.33. Support: $22
RPM Int’l ($42.46) Listed here (1/13/14) at $43.09. Technical pattern weakened Friday and Tuesday. No longer attractive.
Silicom Ltd (SILC:$46.85) Listed here (1/13/14) at $46.44. Dropping after inability Tuesday to top Friday close
Bitauto (BITA: $37.81) Listed here (1/13/14) at $36.44. Support: $37.40
Avery (AVY: $51.31) Listed here (1/13/14) at $50.88. Support: $51.20
Alexion Pharm.(ALXN: 142l56) Listed here (1/13/14) at $135.21.Support: $141.30
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
While the number of economic reports is light, there are several key ones, especially those for housing on Thursday
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.
WEDNESDAY:
ICSC Goldman Store Sales (7:45)
THURSDAY:
Jobless Claims (8:30) Proj: Up 4,000 for week 1/18
PMI Mfg. Ix. (8:58) Proj: January index 55 vs. 55 Dec.
Existing Home Sales (10:00) Proj: Dec 4.900 million rate vs unch from December. Year-on-year was a minus 1.2 pct.
FHFA House Price Ix. (10:00 Proj: Nov. +0.4 pct. vs a +0.5 pct. Oct.
Leading Indicators (10:00) Proj: Dec. +0.1 vs. +0.8 pct. Nov.
RECENT POSTS – 2013
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
Dec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction
Dec 31 DJIA 16,504 Forecast: Get Ready for a Wild Ride !
2014
Jan 2 DJIA 16,504 A Raging Bull, but Corrections Offer Opportunities
Jan 3 DJIA 16,441 More Downside in the Market ?
Jan 6 DJIA 16,469 Correction or New Up-Leg ?
Jan 7 DJIA 16,425 Market at Key Crossroad
Jan 8 DJIA 16,530 Market at Key Crossroad
Jan 9 DJIA 16,462 Bull/Bear Battle Continues – Toss Up, but…
Jan 10 DJIA 16,444 Stocks: Sharp Run Up, Or Down in January ?
Jan 13 DJIA 16,437 What’s Needed to Trigger a Surge or Slide in Stocks
Jan 14 DJIA 16,237 How Ugly Can This Correction Get ?
Jan 15 DJIA 16,373 Correction ? Not So Fast, Says Nasdaq
Jan 16 DJIA 16,481 Stock Pickers’ Market – Rewards, Risks
Jan 17 DJIA 16,417 Stock Pickers’ Markey – Where to Look
Jan 21 DJIA 16,458 Key Day in the Market – and Why
George Brooks
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.
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